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Prices and Work in the New Economy Neva Goodwin April 2014

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Prices and Work in the New Economy Neva Goodwin April 2014 GLOBAL DEVELOPMENT AND ENVIRONMENT INSTITUTE WORKING PAPER NO. 14-01 Prices and Work in The New Economy Neva Goodwin April 2014 Tufts University Medford MA 02155, USA http://ase.tufts.edu/gdae GDAE Working Paper No. 14-01: Prices and Work in The New Economy Abstract The impetus for this paper is the urgent need is to figure out how a non-growing – even a shrinking – economy may be able to provide human well-being while beginning to restore the health of the natural world. Twentieth century economic theory is not well able to conceptualize this problem, especially since it sees growth as necessary for jobs, jobs necessary for income, and income necessary for well-being. To unwind this chain will require some radical changes in economic theory. The theory must focus on the final goal of human well-being, in the present and the future, prior to the intermediate goals of growth, financial wealth, or the maximization of consumption. Equally critical, and difficult, is to find ways for economic theory to take account of human values, and identify the places where they are more salient than market values, or prices. This conceptualization must be done in a context where we have even more reason than usual to doubt our ability to predict the future. This is because the competing forces of technological progress, on the one hand, and the cumulative human impacts on the natural world, on the other, present us with some dramatically diverging possibilities for the future of work. In one possible scenario, technological advances make more and more jobs obsolete: the productive resources of the economy continue to be able to turn out a high level of material goods and services, but fewer and fewer people are needed to keep these processes going. The resulting “technological unemployment” could create massive poverty – unless societies can devise ways of sharing the wealth.1 The other possible future path is one in which, while the economy retains (with the normal slow decay) the store of capital goods (including technological and other knowledge, as well as information and transportation systems) that have been amassed in the last few hundred years, the system encounters serious constraints from the depletion and/or degradation of the natural resource inputs of energy, water, biota, minerals, and other materials. In this case the relative value of material (including energy) inputs is likely to rise relative to the value of human labor – a trend that would be the opposite of what has obtained quite steadily since the onset of the Industrial Revolution. A likely result of this reversal would be a general reduction in labor income, as well as an overall reduction in economic activity, as measured by GDP. 1 One such proposal for sharing the wealth will be set forth in a forthcoming paper, “Basic Income for a New Economy.” 1 GDAE Working Paper No. 14-01: Prices and Work in The New Economy Prices and Work in The New Economy Neva Goodwin2 Introduction In his extraordinarily prescient paper, “Economic Possibilities for our Grandchildren” (1930), John Maynard Keynes referred to the struggle for subsistence as “the economic problem,” and anticipated that, due to the rapidity of technological change, making labor ever more productive, “in our own lifetimes … we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed.” By the time of his generation’s grandchildren (or around 2030) he predicted that “the economic problem” would be solved. In fact, this prediction has already been proved right: Humanity does have the capacity to feed, clothe, house, and provide basic health care for all its members. That we do not do so – that a quarter of the human population still lives in situations of abject poverty – is not because we are technologically incapable. Rather, it is because the prevailing economic systems provide some, but not all, people with the means to be highly productive, in the sense of producing much that is valued in the world’s markets; while others can barely produce enough for their own needs, or work at jobs whose output is rewarded with very low pay. Karl Marx proposed a very appealing resolution to this, in the slogan “from each according to his ability, to each according to his needs.” Socialist or communist regimes that set out to translate this slogan into practice during the 20th century were on the whole less successful than the capitalist alternatives. However, as we move farther into the 21st century, capitalist systems are also showing serious flaws and strains. Many contemporary economies serve the demands of the rich but not the needs of the poor. At the same time the world’s economies have overshot the capacity of the ecosphere to absorb the wastes they generate, and now face catastrophic consequences, unless they make a dramatic change in course. The largest need is to figure out how a non-growing – even a shrinking – economy may be able to provide human well-being while beginning to restore the health of natural world. Twentieth century economic theory is not well able to conceptualize this problem, especially since it models well-being as dependent on income, income dependent on jobs, and jobs dependent on growth. To unwind this chain will require some radical changes in economic theory to allow it to incorporate already existing economic realities. The theory must focus on the final goal of human well-being, in the present and the future, prior to the intermediate goals of growth, financial wealth, or the maximization of consumption. And it must find ways to take account of human values, and identify the places where they are more salient than market values, or prices. 2 An earlier version of this paper will be published in a volume of collected papers from the Imagine Conference, organized jointly by Saint Mary's University in Halifax and the Desjardins credit unions system October 7, 2012, Quebec City, Canada. Titled Co-operatives in a post-growth era: Towards co-operative economics, the book will be published in fall, 2014 2 GDAE Working Paper No. 14-01: Prices and Work in The New Economy This paper will focus especially on the challenges involved with the topic of work in the 21st century. It will look at both paid and unpaid work, giving the latter the attention it deserves, but that it does not receive in a market-focused theory. It will consider the issue of technological employment that Keynes raised (more extended excerpts from his “Economic Possibilities for our Grandchildren” are included in the Appendix.) It will also consider the possibility that resource constraints will, in fact, reduce labor productivity. It will outline scenarios relating to different possibilities for future labor productivity and human well-being. Sections 9 to 11 will propose ways of changing our economy to address the real dangers and opportunities as well as the theoretic failings that are outlined in the first half of the paper. 2. A complex of critical issues for understanding the possibilities of a new economy Much of economic theory is based on the fact that prices affect our lives in many ways. People tend to associate this fact with two beliefs: prices are set by markets: and only markets should set prices. I will argue (in Section 7, below) that markets, in fact, don’t do a very good job of setting some of the prices that are most important in our lives; and that other social forces should, and can, take more intentional control in some areas of some price-setting. This conclusion is not quite so radical as it sounds, for in reality many prices are already set by a much more complex set of factors than just market-determined supply and demand. The reason we are not generally aware of this is that our perceptions are shaped by an economic theory that has gone too far in defining a particular kind of ideal economy, and then in setting out what we must and must not do—or believe—for this ideal to be realized. Which, in fact, it never is. Hence a part of this paper will be about the economic theory that prevents us from seeing some opportunities that are before our eyes. Since these veiled opportunities are pathways to overcoming serious problems, we also often avert our eyes from the problems themselves, feeling that they are essentially insoluble. They are not. They have seemed so because we lack a theoretic framework that can make sense of them, and also because each one is part of a set of problems and issues that are interconnected to an almost baffling degree. When you want to make sense of a really knotted tangle, you need to figure out which threads to pull on. I will list the intertwined issues I have been trying to unscramble in thinking about the new economy, and then I will take hold of a skein of threads that seem to me most likely to lead to constructive new ways of understanding. Box #1: Critical issues for economies of the 21st century: 1. Economic activity and ecological health: the issue of scale 2. Economic activity and human well-being, on the consumption side 3. Technology and work 4. Work and well-being 5. Demographic change 6. How to make the transition to economic systems that are socially and environmentally just, sustainable, and satisfying 3 GDAE Working Paper No. 14-01: Prices and Work in The New Economy 1. First of all is the issue of scale in the relation between economic activity and ecological health.
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